The 6 Studies Paul Ryan Cited Prove…

Mitt Romney’s Tax Plan Is Impossible

Paul Ryan finally had enough time to go through the math of the Romney tax plan during the vice-presidential debate. He didn’t use it. Ryan filibustered instead. About the most specific he got was citing “six studies” he said vindicate the plan’s mathematical plausibility.

Except they don’t.

Romney’s tax plan is a three-legged stool that doesn’t stand. Here’s how it works — or doesn’t. Romney wants to 1) cut tax rates across the board by 20 percent, 2) cut tax expenditures to pay for these tax cuts, and 3) maintain progressivity. The problem, as the Tax Policy Center pointed out, is there aren’t enough tax expenditures for the rich to pay for all the tax cuts for the rich. Romney’s plan only works if he cuts out the tax cuts for the rich, raises taxes on the middle class, or explodes the deficit. In other words, Romney can pick two, and only two, of his tax goals — what Matt Yglesias of Slate calls the “Romney Trilemma”.

That sound you hear is the three-legged stool falling down.

All this hasn’t stopped a fight against the tyranny of arithmetic. The defenses of the Romney tax plan generally fall into three broad categories. The first assumes the plan will set off magic growth of the monster variety; the second assumes Romney defines “middle-class” differently than he does; and the third assumes Romney would eliminate tax expenditures he has indicated he would not eliminate. Let’s briefly consider the six such “studies” that Ryan cited — most are actually blog posts — in turn.

1. Harvey Rosen paper. Rosen, a professor at Princeton, assumed Romney’s lower tax rates would kickstart enough growth to pay for the revenue hole those lower tax rates would create. This seems dubious.Alan Viard and Alex Brill of the conservative American Enterprise Institute (AEI) have argued that it seems unlikely revenue neutral tax reform would have big growth effects — incentives don’t change even if tax rates do. And besides, the Tax Policy Center used aggressive growth estimates from Romney adviser Greg Mankiw’s work to test Romney’s plan. It still didn’t add up.

2. Marty Feldstein Wall Street Journal op-ed. Former Reagan adviser and current Harvard professor Feldstein argued Romney’s plan works if you assume growth would be much stronger and if you define middle class as households making less than $100,000 rather than households making less than $200,000. This latter figure is the one Romney has used when he has said his plan would not raise taxes on the middle class.

3. Marty Feldstein blog post. Feldstein was less aggressive with his growth estimates this time, but he stuck with his definition of middle class as households making less than $100,000. He also assumed Romney might cut tax preferences for employer health-insurance, make municipal bond interest taxable, and eliminate the child tax credit for households making more than $100,000.

4. Matt Jensen blog post at AEI. He argued Romney might cut tax preferences for municipal bonds and life insurance buildups. But this might go against Romney’s promise not to cut tax preferences for savings and investment — and would only pay for half of Romney’s revenue hole, according to the Tax Policy Center.

5. Curtis Dubay blog post at Heritage. He argued Romney might cut tax preferences for municipal bonds and life insurance buildups — yes, again — and that Romney might tax inheritances on a “carryover basis” after eliminating the estate tax. In plain English, heirs would have to pay capital gains for the price an asset was bought for, rather than the price it was inherited at. But as Suzy Khimm of the Washington Post notes, Dubay overestimates how much revenue this change — which, remember, is just a guess about what Romney would do — would generate.

6. Romney Tax Reform White Paper. This is just his advisers arguing by assertion that the plan works.

In other words, Romney’s plan only works if you assume he has a different plan or use a magic growth asterisk. And that means we have no idea what he would do if he wins. Does he care more about his tax rate cuts, about not hiking taxes on the middle class, or not increasing the deficit? His adviser Kevin Hassettsuggested they would back off the high-end tax rate cuts if it would increase the deficit, but Romney quickly denied that. He’s also denied reality, by relying on studies that only prove his critics’ point.